The truth is that when it comes to the stock market, it’s almost as if it is meant for certain players, or specialists, to “win”, while others lose. This certainly isn’t meant to be conspiratorial, but the truth is since all trades go through specialists, or market makers, the prices can be altered so that it benefits them first and foremost.
How does this happen exactly? Well, here is the general idea: the stock market is monopolistic, and it can manipulate the market when it needs to, time and time again. Take an example: the specialist is meant to fulfill a large amount of sells, that exceeds the amount of buys. In this manner, if there is not enough buying pressure, then the specialist can manipulate the spread to prevent something from happening on either the buyer or seller side. In short, the stock market can be regulated (easily manipulated) by specialists to accommodate their needs.
Decentralised forex market
The forex market isn’t like it. Of course, that isn’t to say that there aren’t large and influential players in the market, but it certainly is much more decentralized than the stock market. This doesn’t mean one concrete thing one way or another – this doesn’t mean that you will lose money in the stock market, and that you will make money in the forex market. The truth is that in any market, there is risk and reward. You can make and lose money in both markets.
The currency dealers in the forex market are not like the “specialists” in the stock market. Of course, there are, as mentioned before – major players. Let’s examine some of those players, and the structure in which they exist.
Forex Market Hierarchy
The top of the forex market is referred to as the “interbank” market, and the name is self-explanatory: it includes the largest banks of the world, who are interested and have the resources to constantly trade these global currencies, and help make the forex market as truly massive that It is. The two giants here are the EBS and the Reuters Dealing 3000-Spot Matching. These are the two massive entities that are constantly competing against each other for clients. The decision for a trader to choose between the two would be largely based on which currency pair they are interested in trading.
Specifically, certain pairs are more liquid with one than the other. For clarification, EUR/USD, USD/JPY, EUR/JPY, EUR/CHF, and USD/CHF, are the most liquid on the EBS platform.
Some of the pairs that are more liquid on the Reuters platform are pairs such as BP/USD, EUR/GBP, USD/CAD, AUD/USD, and NZD/USD.
The banks are all offering each other all sorts of rates, and of course, this is dependent on the particular relationship they might have. This might be a hostile rate, where one bank is clearly trying to violently profit off of the other, or a friendlier rate, where the banks tend to cooperate to make money with each other, almost the same way that people form a support system. There are certainly banks with all sorts of relationships, and the rates will reflect that. The same way that you are issued a certain credit score or loan score – these banks keep track of their relationships in that manner, and adjust their rates accordingly.
After the interbank market, there are the “big boys” that can still move massive amounts of money, although it might not be “interbank” massive. These include entities such as hedge funds, giant corporations, retail market makers, and others. Since they HAVE to go through a commercial bank, the chances are that their rate is somewhat higher, but of course, this doesn’t mean that they can’t profit tremendously.
It takes money to make money, and at the lowest level we have the lowly retail traders, the mere mortals of the market. Technology has allowed us to knock down the door, and actually participate, and try to profit for our own individual lives, rather than for a business or a central bank. The same way that information used to be only accessible to some, and the internet has brought it to everybody – the forex market’s doors have been blown wide open, for anyone, any age, with any amount of money, of any gender, to try their luck!